economics

March 15, 2010

Dairies Sour on Trade Talks Farmers Fear Negotiations Will Lead to a Flood of Milk Products From New Zealand

U.S. dairy farmers are pleading for protection from their counterparts in New Zealand as President Barack Obama’s trade negotiators begin talks on a regional agreement in Australia next week.

New Zealand accounts for nearly a quarter of global dairy exports, according to Rabobank International, a large agricultural lender. U.S. dairy farmers are concerned that increased trade with the region could result in New Zealand flooding the U.S. with cheap dairy products such as cheese and milk powder that could depress prices for U.S. producers. Logistics and cost make it unlikely New Zealand would ship fluid milk to the U.S.

Bloomberg NewsA batch of milk is processed at a Fonterra Factory in Takanini, South Auckland, North Island of New Zealand.

NZDAIRY

NZDAIRY

“We’re in a bad way already,” said dairy farmer Paul Rozwadowski, who milks about 60 cows on his northern Wisconsin farm. Making it easier for New Zealand to ship dairy products to the U.S. would be “another thing that’s just going to hurt us.”

Daniel Sumner, a professor of agricultural economics at the University of California, Davis, who has done work for the New Zealand dairy industry, said the Americans’ worries were overblown. “They’re making wild claims,” he said.

U.S. farmers already send agricultural products to New Zealand and other countries in the region and trade talks could further open those markets. The U.S. exported $747 billion of goods to the Asia Pacific region in 2008, including $76 billion of agricultural products, according to the U.S. trade representative’s office.

Last year, U.S. Trade Representative Ron Kirk announced the administration would begin negotiations to further open markets in the Asia-Pacific region. Talks on the Trans-Pacific Partnership Agreement, which are scheduled to begin Monday, will include Australia, Chile, Brunei, New Zealand, Peru, Vietnam and Singapore.

“We’re working with the dairy industry and other industries to consult with them on a regular basis,” said Deputy U.S. Trade Representative Demetrios Marantis.

In recent months, U.S. food-and-agriculture industries from sugar to beef have raised concerns the Trans-Pacific talks could result in more imports from the region to the potential detriment of U.S. farmers.

American dairy farmers are just beginning to recover from nearly two years of severe losses and commodity-price swings. Last year, milk prices plunged to 30-year lows amid weak global demand and high production costs.

New Zealand’s plentiful pastures and mild climate have helped it become one of the world’s lowest-cost dairy producers. Its inhabitants can consume only a fraction of the milk and related products made there, which means much of it is sent overseas.

Dairy products account for nearly a quarter of total merchandise exports from New Zealand and about 7.5% of its gross domestic product, according to the U.S. Department of Agriculture. The U.S. imports some dairy products from New Zealand, but tariffs effectively limit the amount.

The New Zealand dairy industry is dominated by Fonterra Co-operative Group, a company owned by 13,000 dairy farmers that processes most of the country’s milk. Fonterra said successful talks could produce “a major breakthrough in international trade policy.”

U.S. dairy producers fear the structure of New Zealand’s industry would help it undercut them on price. Fonterra is “a powerhouse within the global dairy industry with the ability to significantly sway U.S. as well as world dairy market dynamics,” said Shawna Morris, vice president of trade policy at the National Milk Producers Federation.

A recent analysis by the federation concluded that additional dairy imports from New Zealand would result in U.S. dairy producers losing a cumulative $20 billion in revenue over 10 years.

Mr. Sumner agreed that more New Zealand dairy products entering the U.S. would put some downward pressure on U.S. dairy prices. But he said the U.S. economy would make gains through increased trade in other industries that would likely outweigh hardships for dairy farmers.

The industry has been mobilizing members of Congress to lobby on its behalf. Nearly 50 lawmakers signed a letter to Mr. Kirk asking that dairy trade be excluded from the trade talks.

The American Farm Bureau Federation, one of the nation’s biggest farm groups, said it was opposed to exclusions in the negotiations because they could hamper free trade.

The Trans-Pacific talks “should seek to be a trade-facilitating agreement, not a trade-limiting agreement,” Devry S. Boughner, food giant Cargill’s director of international business relations, told the International Trade Commission this month.

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